Archive for inflation

All Videos from ‘Inflation: Causes, Consequences, and Cure’

From the April 11 Seminar: Inflation: Causes, Consequences, and Cure. A seminar for High School and College Students

(Six Videos)

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Video: ‘What is Money?’ with Mark Thornton

Presented at “Inflation: Causes, Consequences, and Cure”: a free seminar for high school and college students. Hosted at the Mises Institute in Auburn, Alabama, on 11 April 2014.

Photos from Today’s Inflation Seminar

Inflation: Causes, Consequences, and Cure. A seminar for High School and College Students

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Tomorrow: An Inflation Seminar for High School and College Students

unnamedOnline and at The Mises Institute:
Inflation: Causes, Consequences, and Cure. A seminar for High School and College Students

Register  here. 

One of the easiest ways for the state to take our money is to inflate away the value of the money we already hold. When governments and central banks work together to create more paper money, the state’s friends and allies benefit while everyone else who holds the now-devalued currency suffers.

In this new seminar for college and high school students from the Mises Institute, our scholars will help students understand the state’s motivation to inflate the currency while examining the many effects of this backdoor method of taxation.

From hyperinflation, to disruption of entrepreneurial planning, to income inequality and to wealth destruction, students will leave this seminar with a detailed and timely knowledge of the way that inflation is being used worldwide to enrich governments and impoverish private citizens.

Attendance is open to homeschool, public, or private high school students and their chaperones or teachers, and college students. Through the generosity of one of our donors this seminar is free to everyone. To attend the live sessions, at the Mises Institute in Auburn, Alabama, fill out the registration form at the bottom of this page. In addition, all of the sessions will be broadcast live andcan be viewed either from the homepage of Mises.org or through the Mises Academy on the day of the event.  Special thanks to an anonymous donor for making this event possible.

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Audio: Thornton Explains the Crack-Up Boom

Interviewed by host Alan Butler, Mark Thornton explains why the Crack-Up Boom phase of a fiat money collapse is one of the scariest economic phenomena in human history.

Listen here. 

Why Keynesian Economists Don’t Understand Inflation

putting the coinsFrank Hollenbeck writes in today’s Mises Daily

Unnoticed by many mainstream economists is the fact that we are actually having the inflation everyone was so worried about back in 2009. It is simply showing up in asset prices instead of consumer prices. For some reason we consider higher food prices as bad and something to be avoided, while higher home prices are viewed as a good thing and something to be cheered. But they are both a reduction of your purchasing power. Today, home prices outpace wage growth significantly in many markets, and remain at high bubble-like levels, pricing homes out of reach of many young couples. Their incomes have less purchasing power: the money can buy less of a house, just like it can buy less of a hamburger.

By setting an inflation target, the FED did not let deflation run its course after the crash of 2008, and that was a big mistake. During the 2001-2007 boom years, housing prices shot up. This speculative bubble led to massive overbuilding of both private homes and commercial properties.

Deflating the Deflation Myth

Burst your bubbleChris Casey writes in today’s Mises Daily

If deflation does not cause recessions (or depressions as they were known prior to World War II), what does? And why was it so prominently featured during the Great Depression? According to economists of the Austrian School of economics, recessions share the same source: artificial inflation of the money supply. The ensuing “malinvestment” caused by synthetically lowered interest rates is revealed when interest rates resort to their natural level as determined by the supply and demand of savings.

In the resultant recession, if fractional-reserve-based loans are defaulted or repaid, if a central bank contracts the money supply, and/or if the demand for money rises significantly, deflation may occur. More frequently, however, as central bankers frantically expand the money supply at the onset of a recession, inflation (or at least no deflation) will be experienced. So deflation, a sometime symptom, has been unjustly maligned as a recessionary source.

Brazil’s Slow Default

After flying high for several years, Brazil’s luck is quickly running out. Citing bad economic management and one-off accounting tricks that flattered its public finances, credit rating agency Standard & Poors has downgraded the country’s debt to BBB-, just one step above junk.

With this downgrade comes investor fears that the money they have lent the South American government will not be repaid. The reality of the situation is that this is not a new phenomenon.

There are always two ways to default: the explicit and implicit way. Credit rating agencies are concerned with explicit defaults. When a country doesn’t pay interest or principal it is evident that investors have lost. A bond rating informs investors what the perceived risk is that such an unfortunate event will occur.

Explicit defaults are rare compared to their implicit counterparts. Countries often run high inflation rates to reduce the payments on their debts. Money is borrowed at a set interest rate, and by inflating the currency (which the country controls through its central bank) the real cost of repaying this debt is reduced. The inflating country gets a free lunch of sorts, while investors are left with lower inflation-adjusted returns. Credit ratings are often meaningless for dealing with this type of default.

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High price inflation has plagued the Brazilian economy throughout the past decade. Consumers most constantly grapple with increasing prices every year, but no less difficult is the life of an investor in Brazilian government bonds. Unsure of what the rate of inflation will be after they make their “investment”, these individuals are at the mercy of the central bank as it controls the money supply to suit its needs.

Many commentators will point to Brazil’s high economic growth as the reason for its price inflation. These people would do well to just consider some simple statistics from the central bank.

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Money supply growth in Brazil has averaged nearly 20% per year for the past decade, and grew by as much as 40% as recently as 2009. That’s a lot of new money sloshing around looking for a place to be put to good use. As it is spent it has pushed prices up, and reduced the returns that investors in Brazil have earned.

The threat of a default by the Brazilian government might look dire, but it would really just be making explicit the policy the country has been pursuing for many years now. If it an explicit default meant price stability in the aftermath, maybe it would be a good idea to just get the pain over with in one fell swoop.

(Originally posted at Mises Canada.)

Ben Bernanke Gets His Reward

6700Christopher Westley writes in today’s Mises Daily: 

“Bernanke Enjoys the ‘Fruits of the Free Market,’” or so we’re told in a Reuters headlinefrom March 4 about the former Fed chairman’s 40-minute speech in Abu Dhabi for which he received, ahem, $250,000. In the Reuters author’s defense, he was only quoting a DC lobbyist who was defending the amount, and added, Bernanke “will personally experience supply and demand.”

Well, yes, it’s just supply and demand and all that. No big deal and if you don’t like it, you must have something against markets. Still, it would be nice (and a bigger deal) if these reporters would quote someone outside of the accepted intellectual class of the Boswash corridor so compromised by being among the primary beneficiaries of all the new money Chairman Ben and his comrades created, ex nihilo, when he wasn’t shooting baskets in the Marriner Eccles building. If they did, they might hear some healthy skepticism about these events in which top officials cash in on their “public service” via contacts with the very industries they benefited while in office.

How the Artificial Boom of 1914-1929 Caused the Great Depression

732px-Unemployed_men_queued_outside_a_depression_soup_kitchen_opened_in_Chicago_by_Al_Capone,_02-1931_-_NARA_-_541927by David Stockman

From David Stockman’s Contra CornerRemarks to the Committee For The Republic, Washington DC, February 2014 (Part 3 in a 6-Part Series) Go to Part 1.

In this setting, Bubbles Ben 1.0  (New York Fed Governor Benjamin Strong) stormed in with a rescue plan that will sound familiar to contemporary ears. By means of his bond buying campaigns he sought to drive-down interest rates in New York relative to London, thereby encouraging British creditors to keep their money in higher yielding sterling rather than converting their claims to gold or dollars.

The British economy was thus given an option to keep rolling-over its debts and to continue living beyond its means. For a few years these proto-Keynesian “Lords of Finance” —- principally Ben Strong of the Fed and Montague Norman of the BOE—-managed to kick the can down the road.

But after the Credit Anstalt crisis in spring 1931, when creditors of shaky banks in central Europe demanded gold, England’s precarious mountain of sterling debts came into the cross-hairs.  In short order, the money printing scheme of Bubbles Ben 1.0 designed to keep the Brits in cheap interest rates and big debts came violently unwound.

In late September a weak British government defaulted on its gold exchange standard duty to convert sterling to gold, causing the French, Dutch and other central banks to absorb massive overnight losses. The global depression then to took another lurch downward.

Inventing  Bubble Finance : The Call Money Market Explosion Before 1929

But central bankers tamper with free market interest rates only at their peril—-so the domestic malinvestments and deformations which flowed from the monetary machinations of Bubbles Ben 1.0 were also monumental.

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